IFRS Standards
Italy: Late but passionate preparations

Overview

With 82% of companies declaring themselves prepared for the transition to IFRS, Italy trails somewhat behind in the conversion process. This impression is confirmed by their progress in preparing paperwork: only 54% of companies have prepared their IFRS opening balance sheet, and 48% have completed a simulation of their financial statements.

In fact, it is surprising that so many companies consider themselves ready, when core IFRS information for so many is not up to date. It appears that Italian companies are reacting to the deadline and have not completely understood the impact of conversion.

Italian companies are aware of the cost of conversion, as 68% consider it to be high. They do, however, believe the cost to be justified given the benefits of the new set of accounting rules.



Investor communication



Italian companies have not yet communicated much about the new standards with their investors. Only 43% have already done so. Furthermore, communication which has taken place has generally not been quantified, which confirms that it is not necessarily the result of a fully engaged conversion process.

Italian companies all plan to communicate with their shareholders. Their deadlines are quite variable; however, close to 70% intend to inform shareholders of the impacts of IFRS by June 2005.

Italian companies do not anticipate delays in issuing their financial statements, a further sign of efficient preparations in spite of the late start.



Employee training and readiness



Italian finance teams are fairly well trained: Just over 92% of companies surveyed believe their knowledge to be excellent or satisfactory. This places them in the upper ranks in Europe, and can be explained by a high rate of training (95%). The Italians have, therefore, planned for the conversion but have not yet implemented it. It is fair to expect rapid progress of IFRS conversion in the coming months in Italy.



The large majority of companies (76%) have called upon outside consultants for their conversion. This is the second highest rate in Europe. On average, 6 employees work on the transition project; this number is close to the European average. We can conclude that Italian companies have given themselves the means to catch up, in terms of the size of their internal teams as well as use of external consultants.


Financial impact

One quarter of companies admit to not yet knowing what impact the new standards will have on their financial statements. This is the highest rate in Europe. As a result, they are also the most concerned about volatility in reporting under IFRS (77% of those surveyed).

Italians appear to be resolute in their adoption of the new standards, as 46% of companies have modified their performance measures in relation to IFRS. This is the highest rate in Europe.

The Italians are fairly convinced of the advantages of IFRS: 68% believe the new standards will improve financial transparency and 77% that they will facilitate international comparisons. The Italian business community thus generally accepts as valid the stated objectives of IFRS, and are the most convinced of all Europeans as to the benefits of conversion.





Specific standards

As with most European countries, financial instruments present the greatest challenge to Italian companies. Fixed assets are also seen as a significant problem area. Employee benefits and pensions also appear to be a challenging issue.

For 54% of companies, the margin for interpretation has increased with the adoption of IFRS. As a result, 82% of respondents would welcome further interpretation from the IFRIC. These are the highest rates in Europe.

Concerning the adaptability of the new standards to different business sectors, Italian companies are the most satisfied: 61% of companies believe the standards to be appropriate to their particular sector. 80% of the dissatisfied companies would like more interpretation from IFRIC, indicating an important role for this institution in the implementation of the new standards.

Italy appears to generally be on the right track in their conversion to IFRS. Italian companies would nevertheless not have been opposed to the creation of specifically European standards (52% in favour, placing Italy second in Europe). Rejection of U.S. GAAP is broad, however with only 11% of companies supporting its application, a rate well below average.

In the long run, Italian companies plan to use IFRS in their national accounting: 40% intend to undertake this conversion as quickly as possible, a rate equal to the average across Europe.